Dabur + Fem Care Acquistion – Synergic Fit but Expensive Pricing

November 24, 2008

Dabur India acquired a 72.15% stake in Fem Care Pharma from the existing promoters for Rs2.04bn in an all cash deal. Overall contribution of skin care products to Dabur’s sales is less than 4% and this acquisition would help in nearly doubling it. Besides the well entrenched Fem brand this acquisition provides manufacturing base in Nasik and Baddi (enjoying tax benefits). It also has presence in GCC/Middle East markets which could be expanded. FEMC’s direct reach of 25,000 parlors will provide Dabur with a new distribution channel for its own products – the other channels should have some degree of overlap.

Though the acquisition complements Dabur’s existing business, it wasn’t cheap. The transaction transaction happened at multiples of ~3x FY08E EV/Sales and ~20x FY08E EV/EBITDA. Higher than current multiples of our Indian Consumer sector universe. Fem Care had very high brand building and distribution costs and if Dabur can save on this front, it could significantly improve the EBITDA.

Dabur is expected to consolidate the accounts only in FY2010. Dabur’s management expects FEMC’s sales to be Rs 1bn – 1.1bn for FY09 and operating profit of ~Rs180m.